UPDATES TO THE Retroactive Employee Retention Tax Credit
The IRS has released new guidance regarding claiming the retroactive ERTC. Unfortunately, the new guidance requires more granular data. On January 22, 2020 the IRS published guidance that indicated employers claiming the ERTC on Q4 941 for Q1, Q2, Q3, and Q4 can only do so if their PPP Loan was not forgiven.
If your PPP loan was forgiven you can still claim the ERTC. However, the updated IRS guidance requires that: Eligible wages need to be broken up by quarter. Additionally, The Q4 941 can only include eligible wages from Q4 if your PPP loan was forgiven.
Please note that the updated IRS request does not impact the work that you may have already completed as the total credit can still be claimed for 2020. Previously, the IRS guidance allowed that all eligible expenses could be claimed on the Q4 941 (provided your loan was forgiven).
Once again, in order to claim the ERTC for 2020 the eligible wages will need to be broken down into quarterly amounts not to exceed $10,000 in total earnings per employee.
PLEASE NOTE THE FOLLOWING:
- Wages eligible for the ERTC in Q1 of 2020 (Only wages paid between March 13 and March 31 qualify in Q1) were reported on Q2 941.
- Only Q2 and Q3 941s may need to be amended provided those quarters contained the wages eligible for the ERTC.
With the passage of the Consolidated Appropriations Act of 2021, which contained another round of COVID stimulus for businesses, PPP loan recipients are now eligible to claim the Employee Retention Tax Credit (ERTC) retroactively for eligible wages paid in 2020, even if the PPP loan has been or will be 100% forgiven.
A PPP recipient may elect (the Treasury is tasked with publishing guidance on how a business would elect this option) to report eligible wages paid between March 13, 2020 and October 31, 2020 on the business’ Q4 941 along with eligible wages paid between November 1, 2020 and December 31, 2020 to claim the Employee Retention Tax Credit.
ARE EMPLOYERS HELD TO THE ELIGIBILITY STANDARDS SET FORTH IN THE CARES ACT AS OF THE ORIGINAL EFFECTIVE DATE TO QUALIFY FOR THE ERTC RETROACTIVELY IN 2020?
Yes: the qualifications are quite extensive and outside of the scope of this webinar. There is a previous webinar that covers the ERTC as prescribed in the CARES Act, which was signed into law on March 27th, 2020
The webinar can be found here….and covers the numerous qualification factors in depth.
ONCE A BUSINESS DETERMINES IF IT MEETS THE QUALIFICATIONS TO CLAIM THE RETROACTIVE ERTC IN 2020, WHAT IS NEEDED TO CALCULATE THE EMPLOYEE RETENTION TAX CREDIT ON THE Q4 941?
Eligible wages paid between March 13, 2020 & December 31, 2020 (to be eligible these wages must have been paid on a check with a check date that falls within this date range).
HOW COULD A RESTAURANT CALCULATE ELIGIBLE WAGES IF THEY ARE NOT A RASI CLIENT AND DO NOT HAVE ACCESS TO RASI’S ERTC REPORT?
Eligible wages could be calculated using payroll history reports and a PPP forgiveness report.
ARE THERE ANY WAGES THAT ARE EXCLUDED FROM THE DEFINITION OF ELIGIBLE WAGES?
Yes, the following types of wages are excluded from wages eligible for the ERTC should NOT be included in eligible wages:
- Wages that were claimed as a forgivable payroll expense on the PPP Forgiveness Application
- Wages that were claimed as a tax credit under the FFCRA for Emergency Paid Sick Leave EPSL Reason 1-2-3 up to 80 hours & $5,111 maximums (these wages are separately stated on the payroll history reports)
- Wages that were claimed as a tax credit under the FFCRA for Emergency Paid Sick Leave EPSL Reason 4-5-6 up to 80 hours & $2,000 maximums (these wages are separately stated on the payroll history reports)
- Wages that were claimed as a tax credit under the FFCRA for Paid Family Medical Leave (PFMLA) up to $10,000 maximum (these wages are separately stated on the payroll history reports)
- Eligible wages above the amount of $10,000 per employee over the time frame of March 13, 2020 – December 31, 2020; eligible wages are capped at $10,000 per employee
WHAT IF MY LOAN WAS NOT OR WILL NOT BE FORGIVEN?
All wages paid during the covered period would be eligible, except for wages paid under EPSL and PFMLA, these wages are ineligible for the ERTC.
ARE GROUP HEALTH PLAN EXPENSES CONSIDERED PART OF ELIGIBLE WAGES FOR PURPOSES OF CALCULATING THE ERTC?
WATCH THE FULL VIDEO here:
WHAT ARE ELIGIBLE GROUP HEALTH PLAN EXPENSES?
Group health plan premiums, as defined by IRC §5000(b)(1), paid by the employer—not deducted from employees’ paychecks—that can be allocated to wages eligible for the ERTC.
This would include Medical, Dental, and Vision premiums paid by the employer. . . if the employee’s portion is or would be a pre-tax deduction under a §125 benefits plan.
WHAT IS THE TAX CREDIT AMOUNT?
50% of eligible wages, so a maximum of $5,000 per employee (In 2020, $10,000 is the maximum amount of eligible wages per employee including eligible group health plan expenses).
HOW WILL THE CREDIT BE CLAIMED?
As a refund on the 2020 Q4 Form 941, which is due February 1, 2021.
ARE WAGES USED TO CLAIM THE ERTC DEDUCTIBLE ON MY FEDERAL INCOME TAX RETURN?
No, the wages equal to the amount of the tax credit are not a deductible expense on your federal tax return.
WHEN WILL THE REFUND BE RECEIVED?
The IRS must process the 941 and mail out the refund check.